Section 269ST – Introduction and Its Significance
April 26, 2018
US Tax Returns – Should I File an Amended Return
April 26, 2018

Section 64 of Income Tax Act

Last Update Date : April 27, 2018

section 64

The most priceless part of anybody’s life is not his income but the family on whom he spends his income. Therefore, each earning individual invests in the name of his or her spouse and children for the betterment of their future. During the phase of demonetisation, we got to know that a homemaker can be a perfect portfolio manager by making a single penny into billions of dollars. But there are some individuals, who try to do illicit activities in the name of their spouse or children. Due to such people, there is Section 64 of the Income Tax Act to ensure that they do not take undue advantage of their loved ones.

Clubbing of Income

When an assessee’s income has an inclusion of income of some other individual, it is known as clubbing of income.

For example, Mr Vijay earns interest on fixed deposit he made in the name of his son, Amey, who is still a minor, need to be clubbed with Mr Vijay’s income.

Definitions

Minor

The individual who is below 18 years of age is known as a minor.

Major

The individual who is above 18 years of age is known as a major. A major is liable to pay the taxes all by himself without clubbing.

Transferor

An individual who transfers the asset to another individual’s name is known as a transferor.

Transferee

An individual on whose name an asset is transferred is known as transferee.

Sections covered under Clubbing of Income

Sections Descriptions
Section 60 Transfer of Income where there is no Transfer of Asset
Section 61 Revocable ( can be cancelled legally) Transfer of Asset
Section 62 Revocable ( can be cancelled legally) Transfer of Asset for a specific period
Section 63 Transfer and Revocable Transfer defined
Section 64 Income of an Individual to include Income of Spouse, Minor child
Section 65 Liability of person (transferee) in respect of income included in the income of another person(the transferor)

Section 64

Section 64 covers all the provisions which are applied to an individual who is liable to pay taxes on the income of his or her spouse and minor child.
The Section 64 is further divided into four parts

section 64

Section 64(1)

Inclusion of Income of Spouse:

Sec 64(1)(ii)

  • If an individual is earning a salary by working in an organisation. His or her spouse or the spouse along with the relatives has a minimum of 20% stake in that organisation, then the salary of the individual is a taxable income of his or her spouse.
  • If the individual and his spouse or spouse along with the relatives both have a minimum of 20% stake in the organisation, then the least of the two salaries is a taxable income of the one who is having a higher salary from both.
  • If the individual whose income is clubbed with his or her spouse or spouse along with the relatives, has a technical or professional degree or certificate, then this clubbing of income is not required. Both the individuals will be liable to pay taxes on their respective incomes.
  • Here relatives include husband, wife, brother or sister or any lineal ascendant or descendant of the individual.

Sec 64(1)(iv)

  • If an individual has transferred an asset to his or her spouse, without any adequate consideration, then the income/profit generated from an asset such as this is a taxable income of that individual if both of them are not supposed to live away from each other.
  • If the asset is transferred due to the following considerations, then there will be no clubbing of income:
  1. Assets transferred before marriage.
  2. Assets transferred for adequate consideration.
  3. Assets transferred in connection with an agreement to live apart.
  4. On the date of accrual of income, the transferee is not the spouse of the transferor.
  5. The spouse acquires property out of pin money (i.e. an allowance given to the wife by her husband for her dress and usual household expenses).

Sec64(1)(vi)

If an individual has transferred an asset to his or her son’s wife, without any adequate consideration, then the income/profit generated from an asset such as this is a taxable income of that individual.

Sec 64(1)(vii)

If an individual has transferred an asset to a third person for the benefit of his or her spouse, without any adequate consideration, then the income/profit generated from an asset such as this is a taxable income of that individual.

Sec 64(1)(viii)

If an individual has transferred an asset to a third person for the benefit of his or her son’s wife, without any adequate consideration, then the income/profit generated from an asset such as this is a taxable income of that individual.

Sec 64(1A)

Inclusion of Income of Minor Child

  • In computing the total income of an individual, there shall be included all such income as arising due to his minor child.
  • The income shall be clubbed in the hands of the parents whose total income is greater after excluding the income of the minor child.
  • And if the marriage of his parents does not subsist, the income shall be clubbed in the hands of that person who maintains the minor child in the previous year.
  • Where any income is once included in the total income of either parent, any such income arising in any succeeding years shall be included in the income of the same parent unless Assessing officer is satisfied that it should be clubbed with the other parent.
  • Further, a deduction up to Rs 1500 per minor shall be allowed against such income which is clubbed in the hands of the parent.
  • The income from the minor will not be clubbed under following situations
  1. Manual work done by him
  2. Activity involving application skill, talent or specialised knowledge or experience.
  3. Any income of a minor child who is suffering from disability of the nature specified in section 80U like physical disability, blindness etc.

Section 64(2)

Inclusion of Income from self-acquired property converted into joint family property

  • Where an individual, who is a member of the Hindu undivided family, converts his separate property as the property of the HUF or, throws the property into the common stock of the family or, transfers his individual property to the family, without any adequate consideration, then the income generated from such property is the taxable income of that individual.
  • If the converted property is subsequently partitioned among the members of the family, the income derived from such converted property, as is receivable by the spouse and the minor child of the transferor will be taxable in his hands.
  • Income from Accretion of the assets: In the cases mentioned above, the income arising to the transferee from the property transferred is taxable in the hands of the transferor. However, income arising to the transferor from such income is not includible in the total income of the transferor.

Additional Information

  • If it is found that the registered parent of the minor has lower income than the other parent, then the assessing officer will give an order to club the income of the minor with the parent who has a higher income than both.
  • If any asset transferred generates losses, they will also be added in the income of the transferor or the parent with the higher income in case of assets on the name of a minor even though this reduces the tax payable.
  • The money saved by wives from their household chores is not to clubbed with the husband. That money belongs to the wife.
  • When grandparents gift their grandchildren some money, that is considered as a cross gift and is not supposed to be clubbed.
  • Minor child includes a stepchild, adopted child.

Section 64 covers the clubbing of income of an individual with his or her spouse and minor child. If you want to file your tax returns for minimising your tax liabilities, H&R Block is the place for you. Our dedicated team of tax experts will help you file your taxes effectively and in a hassle free manner.

  • Share: 

Still Have Questions?